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Personality, IQ, and Lifetime Earnings

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  • Gensowski, Miriam

    () (University of Copenhagen)

Abstract

Talented individuals are seen as drivers of long-term growth, but how do they realize their full potential? In this paper, I show that even in a group of high-IQ men and women, lifetime earnings are substantially influenced by their education and personality traits. I identify a previously undocumented interaction between education and traits in earnings generation, which results in important heterogeneity of the net present value of education. Personality traits directly affect men's earnings, with effects only developing fully after age 30. These effects play a much larger role for the earnings of more educated men. Personality and IQ also influence earnings indirectly through educational choice. Surprisingly, education and personality skills do not always raise the family earnings of women in this cohort, as women with very high education and IQ are less likely to marry, and thus have less income through their husbands. To identify personality traits, I use a factor model that also serves to correct for prediction error bias, which is often ignored in the literature. This paper complements the literature on investments in education and personality traits by showing that they also have potentially high returns at the high end of the ability distribution.

Suggested Citation

  • Gensowski, Miriam, 2014. "Personality, IQ, and Lifetime Earnings," IZA Discussion Papers 8235, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp8235
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    References listed on IDEAS

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. "Many ways of being smart"
      by chris dillow in Stumbling and Mumbling on 2014-07-19 14:09:41
    2. Grit beats talent
      by chris in Stumbling and Mumbling on 2015-11-05 20:03:36

    Citations

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    Cited by:

    1. Humphries, John Eric & Kosse, Fabian, 2017. "On the interpretation of non-cognitive skills – What is being measured and why it matters," Journal of Economic Behavior & Organization, Elsevier, vol. 136(C), pages 174-185.
    2. Fletcher Jason M. & Schurer Stefanie, 2017. "Origins of Adulthood Personality: The Role of Adverse Childhood Experiences," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 17(2), pages 1-22, April.
    3. Jones, A.M.; & Rice, N.; & Robone, S.;, 2018. "The effect of health shocks on financial risk preferences differs by personality traits," Health, Econometrics and Data Group (HEDG) Working Papers 18/07, HEDG, c/o Department of Economics, University of York.
    4. Sahn, David E. & Villa, Kira M., 2016. "Labor Outcomes during the Transition from Adolescence to Adulthood: The Role of Personality, Cognition, and Shocks in Madagascar," IZA Discussion Papers 10359, Institute for the Study of Labor (IZA).
    5. Peter Savelyev & Kegon Tan, 2015. "Socioemotional Skills, Education, and Health-Related Outcomes of High-Ability Individuals," Vanderbilt University Department of Economics Working Papers 15-00007, Vanderbilt University Department of Economics.
    6. Sahn, David E. & Villa, Kira M., 2015. "The Role of Personality, Cognition and Shocks in Determining Age of Entry into Labor Market, Sector of Employment, and within Sector Earnings," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205673, Agricultural and Applied Economics Association;Western Agricultural Economics Association.
    7. Heckman, James J. & Humphries, John Eric & Veramendi, Gregory, 2016. "Dynamic treatment effects," Journal of Econometrics, Elsevier, vol. 191(2), pages 276-292.

    More about this item

    Keywords

    human capital; Big Five; life-time earnings; returns to education; cognitive skills; social skills; personality traits; factor analysis;

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • I24 - Health, Education, and Welfare - - Education - - - Education and Inequality
    • J16 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Gender; Non-labor Discrimination

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